Question

You are assisting an attorney in the closing of a loan made by a federally insured savings and loan association to facilitate the purchase of a home. The loan is closing on October 15. The first payment under the loan will be due on December 1. The real estate taxes on the home for the current year were due and payable on September 1, and they have been paid in the amount of $1,800. If the lender requests that you escrow taxes under its loan, how much money do you need to collect for the escrow at the closing on October 15?

Answer 1

Closing is the final step in executing a real estate transaction. On the closing date, the ownership of the property is transferred to the buyer.

In some cases, closing in escrow may occur. In this process, a title company or other trusted party holds the money and the signed deed, and arranges for the transfer. This is primarily so that the seller can give up ownership of the property, and the buyer can hand over the payment, without both parties having to be present at the closing at the same time. Escrow ensures an orderly transaction, or if something goes wrong, an orderly termination of the agreement.

So, we need to collect the purchase price of the property plus the real estate taxes and insurance charges (if any) for the escrow at the closing on October 15th.

Once closing is done, an escrow account is used to hold real estate tax and insurance money until those bills are due. It also includes the funds needed to pay property taxes and home insurance payments.